nep-ban New Economics Papers
on Banking
Issue of 2015‒12‒28
nine papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Measuring heterogeneity in bank liquidity risk: who are the winners and the losers? By Jean-Loup SOULA
  2. Specialization in Bank Lending: Evidence from Exporting Firms By Daniel Paravisini; Veronica Rappoport; Philipp Schnabl
  3. Capital requirements, risk shifting and the mortgage market By Uluc, Arzu; Wieladek, Tomasz
  4. Preferential Regulatory Treatment and Banks' Demand for Government Bonds By Bonner, Clemens
  5. What happened to profitability? Shocks, challenges and perspectives for euro area banks. By Gong Cheng; Dirk Mevis
  6. Systemic Risk and the Optimal Seniority Structure of Banking Liabilities By Sprios Bougheas; Alan Kirman
  7. The real effects of capital requirements and monetary policy: evidence from the United Kingdom By De Marco, Filippo; Wieladek, Tomasz
  8. Regulation and Market Liquidity By Francesco Trebbi; Kairong Xiao
  9. The Shadow Economy and Banks’ Lending Technology By Salvatore Capasso; Stefano Monferrà; Gabriele Sampagnaro

  1. By: Jean-Loup SOULA (LaRGE Research Center, Université de Strasbourg)
    Abstract: The 2007-2009 crisis stressed the importance of liquidity for banks. Using a risk factor model, we propose a measure of bank exposure to liquidity risk based on their sensitivity to aggregate liquidity conditions. Results indicate that liquidity risk is a specific risk. Moreover, this measure sheds light on the heterogeneity among banks in terms of exposure to liquidity risk. Banks benefit, lose or are insensitive to liquidity conditions, and we document large variation in exposure across the 2008 and 2011 crises. Larger size and capital levels tend to insulate banks from aggregate liquidity risk. However, deposit share, reliance on wholesale funding and funding gap impact only banks whose risk decreases with increasing aggregate liquidity risk. These ratios indicate the level of liquidity production by banks. This suggests that market discipline applies to liquidity production but only on the less risky banks in case of a liquidity crisis. Thus market discipline appears to be one-sided. To that extent it reinforces the necessity to impose liquidity requirements to all banks, as through the Basel III liquidity ratios.
    Keywords: E51, G21, G28, G32.
    Date: 2015
  2. By: Daniel Paravisini; Veronica Rappoport; Philipp Schnabl
    Abstract: This paper develops an empirical approach for identifying bank specialization in export markets. Combining loan and shipment data for all exporters in Peru, we find that all banks have abnormally large and persistent loan portfolio exposures to at least one export destination market. Specifications that saturate all bank-time and firm-time variation show that firms that expand exports to a country are more likely to borrow from banks that specialize in that country. This link between exports and bank specialization holds both for existing and new lending relationships. Using differential exposure to the 2008 financial crisis, we further find that shocks to the credit supply of banks has a larger effect on exports to the bank's markets of specialization, implying that specialized bank debt is difficult to replace. These results suggest that banks have market-specific areas of expertise that are distinct from firm-specific knowledge gathered through relationship lending.
    JEL: F14 G21
    Date: 2015–12
  3. By: Uluc, Arzu (Bank of England); Wieladek, Tomasz (Bank of England)
    Abstract: We study the effect of changes to bank-specific capital requirements on mortgage loan supply with a new loan-level data set containing all mortgages issued in the United Kingdom between 2005 Q2 and 2007 Q2. We find that a rise of a 100 basis points in capital requirements leads to a 5.4% decline in individual loan size by bank. Loans issued by competing banks rise by roughly the same amount, which is indicative of credit substitution. Borrowers with an impaired credit history (verified income) are not (most) affected. This is consistent with origination of riskier loans to grow capital by raising retained earnings. No evidence for credit substitution of non-bank finance companies is found.
    Keywords: Capital requirements; loan-level data; mortgage market; credit substitution.
    JEL: G21 G28
    Date: 2015–12–18
  4. By: Bonner, Clemens (Tilburg University, Center For Economic Research)
    Abstract: The purpose of this paper is to analyze the impact of preferential regulatory treatment on banks’ demand for government bonds. Using unique transaction-level data, our analysis suggests that preferential treatment in microprudential liquidity and capital regulation significantly increases banks’ demand for government bonds. Liquidity and capital regulation also seem to incentivize banks to substitute other bonds with government bonds. We also find evidence that this "regulatory effect" leads banks to reduce lending to the real economy.
    Keywords: government bonds; financial markets; regulation; liquidity; capital allocation
    JEL: G18 G21 E42
    Date: 2015
  5. By: Gong Cheng (European Stability Mechanism); Dirk Mevis (European Stability Mechanism)
    Abstract: This paper uses a newly constructed dataset including financial statement information of 310 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks’ profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.
    Keywords: Bank, profit, return on asset, bank regulation, bank business model
    JEL: G21 G28 G33 L25
    Date: 2015–11
  6. By: Sprios Bougheas; Alan Kirman
    Abstract: The paper argues that systemic risk must be taken into account when designing optimal bankruptcy procedures in general, and priority rules in particular. Allowing for endogenous formation of links in the interbank market we show that the optimal policy depends on the distribution of shocks and the severity of fire sales
    Keywords: Banks; Priority rules; Systemic Risk
    Date: 2015
  7. By: De Marco, Filippo (Bocconi University); Wieladek, Tomasz (Bank of England)
    Abstract: We study the effect of changes to UK bank-specific capital requirements on small and medium-sized enterprises (SME) from 1999 to 2005. Following a 1% rise in capital requirements, SME asset growth (and investment) contracts by 3.5% to 6.9% (12%) in the first year of a new bank-firm relationship, but this effect declines over time. These results are robust to a number of different fixed effects specifications and measures of capital requirement changes that are orthogonal to balance sheet characteristics by construction. Banks with tight capital buffers are the most significant transmitters of this shock. Monetary policy only affects the asset growth of small bank borrowers, but has a similar impact on the same sectors as capital requirements. There is evidence that these instruments reinforce each other when tightened, but only for small banks. Firms that borrow from multiple banks and operate in sectors with alternative forms of finance are less (equally) affected by changes in capital requirements (monetary policy).
    Keywords: Capital requirements; firm-level data; SMEs; relationship lending; macroprudential and monetary policy
    JEL: G21 G28
    Date: 2015–12–18
  8. By: Francesco Trebbi; Kairong Xiao
    Abstract: The aftermath of the 2008-09 U.S. financial crisis has been characterized by regulatory intervention of unprecedented scale. Although the necessity of a realignment of incentives and constraints of financial markets participants became a shared posterior after the near collapse of the U.S. financial system, considerable doubts have been subsequently raised on the welfare consequences of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its various subcomponents, such as the Volcker Rule. The possibility of permanently inhibiting the market making capacity of large banks, with dire consequences in terms of under-provision of market liquidity, has been repeatedly raised. This paper presents systematic evidence from four different estimation strategies of the absence of breakpoints in market liquidity for fixed-income asset classes and across multiple liquidity measures, with special attention given to the corporate bond market. The analysis is performed without imposing restrictions on the exact dating of breaks (i.e. allowing for anticipatory response or lagging reactions to regulation) and focusing both on levels and dynamic latent factors. We report both single breakpoint and multiple breakpoint tests and analyze the liquidity of corporate bonds matched to their main underwriters making markets on those assets. Post-crisis U.S. regulatory intervention does not appear to have produced structural deteriorations in market liquidity.
    JEL: E43 E52 E58 G18 G28
    Date: 2015–11
  9. By: Salvatore Capasso (ISSM, CNR and CSEF); Stefano Monferrà (Università di Napoli “Parthenope”.); Gabriele Sampagnaro (Università di Napoli “Parthenope”.)
    Abstract: Is there a relationship between bank monitoring models and the level of shadow economy? This paper develops a model of optimal lending technology to study the relationship between local underground economic activity and banks’ lending choices. In turn, as the aggregate level of informality and tax evasion increase, it becomes more profitable for banks to screen and supervise borrowers using more costly in-depth monitoring technologies. A large dataset of regional Italian data confirms these conjectures.
    Keywords: Shadow economy, lending technology, monitoring
    JEL: G21 H26
    Date: 2015–12–16

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